Lehman minbond lessons - 迷你債券迷你教室 - 3 arbitrage

A short series of lessons to dissect the workings of minibonds

一系列課堂，解構雷曼迷你債券疑團

Category:

Nonprofits & Activism

Tags:

• Finance
• Lehman
• minibond
• BackyardFire
• 財經
• 雷曼
• 迷你債券
• 火燒後欄

[liveintoday]

咁系米D non-stake holders of blue chip買了CDS，如果D blue chip公司咩事都無發生，就齋俾investment bank保費～

但如果D藍籌公司有事，investment bank still needs to compensate them?

but the thing is that there is no actual contract between these people and the blue-chip companies, so how much should the investment bank compensate them?

仲系有少少唔明，懇請先生指教。

[curioushunter]

there are 2 contracts. One is (Lehman & CDS buyers) another is (Lehman subsidiary & minibond holders). Both triggered by the "if-blue chips fail", the then-part is "compensate CDS holders" & "charge that on minibond holder"

過澳門買番攤，開五點，殺雙賠單，殺大賠細

[doseryder]

I like to thank you again for putting together is series. Man, you must work in the financial/investment sector or something.

[curioushunter]

Thx again. No, I am not in this evil industry. I swear. Just an interested layman out there. Hoping that "the truth is out there"

[curioushunter]

why non-stake buy CDS is simple: to bet. But not betting horse, or the next US president or other animals, it bets on the credit status of blue chips, and you earn something when mishap happens. You bet and win even if not "inside scoop". Sometimes you are lucky, or insightful, or whatever, just like when you win a lottery.

[doseryder]

Like I said, I'm new to this but the fact that this is on the news everyday it got me interested. What's more interesting is through these lessons I learned a little of how closely related insurance and investment companies are interconnected. I was hoping that you could answer the question I asked earlier about why would non-stakeholders buy CDS? I mean, I could imagine people that has all the inside scoop of a company would make a fortune off CDS.

[curioushunter]

As a sidekick, CITIC Pacific revealed yesterday loss of 15 billions of dollars on forex leverage - half the company worth. If you had its CDS beforehand, now its chance of bankruptcy goes up, you can sell the CDS out for a good profit. So it means you make money not only when it ruins, but when the chance of ruin goes up

[curioushunter]

Thx. pls see my comments below

[curioushunter]

Thx for your response.

Basically, these folks insure against the collapse of some blue chips

when that doesn't happen, you don't get reimbursed. So you lose nothing even if the insurance company go bust. If you buy a non-winning Mark Six ticket, you lose nothing even if HKJC goes bust.

As I said, CDS allows payoff even if you are not stakeholder. You see, you can bet on some website on whether McCain or Obama wins, and you sure not a stakeholder.

[doseryder]

I'm new to this, but up to lesson 3, is it correct to say that the so-called blue chip securities holders (the folks on the right of your illustration) and anyone who bought CDS are not affected b/c they're insured. What kind of people would buy these CDS if they are not stakeholders, I don'tunderstand?